A New York Landmark Moves Toward an I.P.O. Despite Legal Appeals

Significant risks lurk in the fine print of a public offering involving the Empire State Building.Credit
Todd Heisler/The New York Times

Investors hoping to own a piece of the Empire State Building may soon get their chance.

Despite the fact that legal questions are still swirling around the deal, it is expected that the planned public offering of the 102-story tower will proceed.

“I think they’ll likely move forward with the I.P.O. as soon as possible,” said Eric Jensen, a lawyer with Cooley L.L.P. “They just have to disclose all of the risks so investors know what they’re getting into,” he added.

As fine print goes, there are some pretty big risks, including the possibility that the whole public offering could be undone.

Last week, stakeholders that own the Empire State Building voted in favor of a plan to sell it as part of an initial public offering that is expected to raise as much as $1 billion.

But the wrinkle in the deal is a lawsuit brought by dissident stakeholders who argued that certain provisions of the deal violated New York State law. A judge ruled a few weeks ago that the vote was legal, but the dissident shareholders filed motions for a stay of the ruling and an appeal of the ruling.

A lawyer for the dissidents, Stephen B. Meister, said the stay should be decided any day now, but that the appeal would probably not be heard until late fall. He has questioned how the public offering could go forward if a judge could later rule that the vote was invalid, potentially undoing any public offering.

“From a disclosure standpoint, describing how an I.P.O. could be unwound after it is done is tough,” said Steve Thel, a professor at Fordham Law School. “But from a strategic standpoint, if you don’t move forward with the offering, that allows the dissenters to win even though they’ve lost in court.”

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So far, Peter L. Malkin and his son Anthony E. Malkin, the real estate barons whose stake in the public company could be worth about $730 million, are mute on their next move. In an e-mailed response to questions about the public offering and the legal challenges, a spokeswoman for their firm, Malkin Holdings, said it would follow securities rules and “process towards an I.P.O.”

The Malkins, who control the Empire State Building but are minority owners, lobbied vigorously to persuade 80 percent of the building’s approximately 3,000 stakeholders to vote in favor of a plan to sell to the public shares in Empire State Realty Trust. The trust will combine 19 properties in the New York area that they oversee, including the Empire State Building.

The dissident investors are also uncertain about what happens next.

In a conference call with fellow investors last week, several individuals said they were moving to vote in favor of the offering, fearing that they could otherwise receive much less for their shares.

Now that the Malkins have exceeded the 80 percent approval hurdle, anyone who voted against the proposal will be sent what is called a forced consent letter, giving them 10 days to switch their vote to yes or risk receiving only $100 for their share. The offering values the shares at about $323,000 each.

That clause was the basis of the dissident lawsuit, which argued that under New York State law, the Malkins should pay “fair value” for all of the shares. In late April, Justice O. Peter Sherwood in State Supreme Court in Manhattan rejected the investor group’s challenge. That ruling has been appealed.

“It’s been quite a roller coaster for us,” said Richard Edelman, the California businessman who campaigned against the public offering in the conference call. “It may not be over. It may be over. That’s going to be decided, I believe, by the appellate court.”

Correction: June 10, 2013

An article on the Square Feet pages Wednesday about progress toward an initial public offering of a group of properties including the Empire State Building referred imprecisely to the amount of time shareholders who voted against the offering have to consider switching their vote. While they have 10 days to take action, those 10 days are from the time they receive what is known as a forced consent letter, which is sent after 80 percent of shareholders agree to the offering plan — not 10 days from the time the approval vote reaches that threshold.

A version of this article appears in print on June 5, 2013, on Page B10 of the New York edition with the headline: A New York Landmark Moves Toward an I.P.O. Despite Legal Appeals . Order Reprints|Today's Paper|Subscribe